1. Field of the Invention
The invention relates to data processing systems and the methods of their use. In particular, the invention relates to a system and method for rapid income tax collection from merchants at the point of sale.
2. Related Art
The information contained in this section relates to the background of the art of the present invention without any admission as to whether or not it legally constitutes prior art.
Various systems and methods have been employed for the payment and reporting of taxes to governmental agencies. For example, reference may be made to U.S. Statutory Invention Registration H1,830 and the following U.S. Pat. No. 5,335,169 to Chong; U.S. Pat. No. 5,420,405 to Chasek; U.S. Pat. No. 5,799,283 to Francisco et al.; U.S. Pat. No. 5,875,433 to Francisco et al.; U.S. Pat. No. 6,078,898 to Davis et al.; and U.S. Pat. No. 6,078,899 to Francisco et al.
In particular, the '283 patent, the '433 patent and the '899 patent are directed to systems for automatically collecting and reporting taxes. The systems disclosed in these patents create reports on sales tax and provide means of reporting the tax to the state and federal government. These systems do not, however, address the distribution of taxes.
In addition to the payment and reporting of taxes, the collection of sales and use taxes is an important business requirement of retailers and merchants throughout the United States. In this regard, taxing authorities at the local, state and federal levels require both large and small businesses to collect a sales tax for each taxable item of goods they sell in the course of commerce.
To meet taxing authority requirements, currently a typical merchant and/or other entity must calculate the sales tax for each customer transaction, add the calculated sum to the invoice or bill subtotal presented to the customer for the goods sold, collect the sales tax from the customer with the purchase sum, deposit for safe keeping the collected taxes and finally remit and account for the collected taxes to the appropriate taxing authorities on a periodic basis, which is typically on a quarterly basis and/or other.
To compensate the merchant or retailer for the burden of acting as the agent for the taxing authority, the merchant is allowed to keep the periodic interest accrued on the collected tax dollars during each collection period.
While the above described method of collecting and remitting sales and use taxes has been effectively employed for many years, such a method is not cost effective and cumulatively costs the taxing authorities millions of dollars. In this regard, the taxing authority not only loses the accrued periodic interest known as “the float,” but the authority also loses the use of the collected money until it is remitted by the merchants for the collection period. Moreover, since the taxing authority does not have the use of the collected money until it is remitted, the money is not available for use to pay the monetary obligations of the taxing authority. Thus, the taxing authority may be compelled to borrow money to meet its financial obligations. Furthermore, such a system places a heavy burden on merchants and taxing authorities alike since it requires manual implementation.
In U.S. Pat. No. 5,644,724, issued Jul. 1, 1997, there is disclosed a point-of-sale tax collection system and method of using same. The abstract of the '724 patent states that a “new and improved tax collection system and method collects and remits taxes in real time at point-of-sale locations. The system includes a group of point-of-sale terminals at merchant point-of-sale facilities that receive and store tax collection information under merchant control. A bank computer at a merchant bank accesses the stored tax collection information and wire transfers the collected sums periodically to at least one computer at a taxing authority such as a tax authority bank or other financial organization. For credit or debit transactions, a service computer receives the tax collection information daily or at other periods of time from certain ones of the point-of-sale terminals, and wire transfers the credited or debited taxes to the tax authority bank computer.”
Such a patented system is highly desirable, effective and efficient for tax collection and distribution. It would be desirable to extend such a system to, for example, a nationwide or, perhaps, a worldwide network of merchants. However, due to the fact there are numerous taxing authorities, such as federal, state and local governments, and/or other entities in the United States and internationally, each merchant would be required to communicate with the numerous taxing authorities each day or other regular period of time. This complexity can be disruptive and unwanted for some situations such as for small businesses.
Additionally, each taxing authority would be required to communicate with thousands of merchants across the nation on a regular basis in order to receive the tax revenues. Each taxing authority would be required to invest in sufficient resources in order to handle the demand of the collection system. This demand may be too burdensome for many taxing authorities.
Additional problems related to the collection of sales tax on a large-scale basis are created with the explosion of e-commerce transactions. One problem created by e-commerce is related to the determination of the proper taxing authority. For example, transactions on the Internet may involve a consumer in one state, a merchant's place of business in another state, warehousing in a third state, billing or processing in a fourth state, and a fulfillment center in a fifth state. Each of the five states involved may have different taxing rules. For example, a state may require tax on a transaction if the consumer is in that state, or the state may require tax if the merchant is in that state. Thus, a merchant may be required to distribute taxes to a large number of taxing authorities.
With the emergence of the Internet and the explosion in e-commerce transactions, the taxing authorities are bound to experience a sharp increase in the number of transactions in such a system. Such an increase would require each taxing authority to expand its ability to handle all of the anticipated transfers. Additionally, beyond the collection of taxes on the transaction, collection of other revenues must also be addressed. For example, income tax is generally paid to the taxing authority by large merchants in the form of periodic estimated tax payments. The tax may be estimated based on the actual tax paid in the previous year. Thus, the estimated income tax for the year is paid in, for example, periodic equal tax payments.
This arrangement has drawbacks similar to those discussed above. Another drawback is a possible unfairness in the timing of the tax payments. For example, the estimated tax payment system may be unfair to a merchant, such as toy retailer, who earns most of his income at the end of the year. This merchant pays equal amounts of tax payments at the beginning of the year even though he has not yet earned the income being taxed. Similarly, in other instances, the system may be unfair to the taxing authority. For example, other merchants may earn most of their income at the beginning of the year but may not pay appropriate taxes until the end of the year. Thus, the taxing authority loses the opportunity to use its tax revenue for a certain period.